Banking Risk and Capital

Banking risk and capital pages explain how banks measure loss exposure, hold capital against risky assets, manage balance-sheet risk, and satisfy prudential rules.

This section sits between Banking and Risk Management because these terms are operationally banking-specific but conceptually risk-focused.

In this section

• Asset-Liability, Interest-Rate, and Liquidity Risk
  ALCO, ALM, EVE, LCR, negative gap, and reserve-asset ratio terms for bank balance-sheet risk.
  • Asset-Liability Committee (ALCO): Role and Example
    Asset-Liability Committee (ALCO) is a finance-focused reference term for regulation, risk, capital, or market analysis.
  • Asset-Liability Management (ALM): Meaning and Example
    Asset-Liability Management (ALM) is a finance-focused reference term for regulation, risk, capital, or market analysis.
  • Economic Value of Equity (EVE): Meaning and Example
    Economic Value of Equity (EVE) is a finance-focused reference term for regulation, risk, capital, or market analysis.
  • Liquidity Coverage Ratio (LCR): Definition, Calculation, and Importance
    Comprehensive guide to understanding the Liquidity Coverage Ratio (LCR), its definition, calculation, significance under Basel III, and its impact on financial stability.
  • Negative Gap: Definition, Mechanics, and Implications in Banking
    An in-depth exploration of negative gaps, covering their definition, mechanics, implications, examples, and relevance in the banking sector.
  • Reserve Asset Ratio
    Reserve Asset Ratio is a finance-focused reference term for regulation, risk, capital, or market analysis.
• Bank Solvency, Ratings, and Stress Testing
  Bank rating, solvency margin, solvency statement, stress-testing, and Texas ratio terms.
  • Bank Ratings
    An in-depth exploration of bank ratings, their significance, methodologies, and impact on financial stability. Understand how government agencies and private companies assess the safety and soundness of banks.
  • Solvency Margin: Ensuring Insurance Company Stability
    An in-depth look at Solvency Margin, including its definition, importance, calculation, and historical context, ensuring the financial stability of insurance companies.
  • Solvency Statement: Ensuring Financial Stability Post-Transaction
    A solvency statement is a declaration that a company remains financially solvent following a specific transaction. It is vital in safeguarding stakeholders' interests by ensuring continued operational viability.
  • Solvency vs. Capital Adequacy: Key Financial Health Metrics
    Solvency indicates the overall viability of an institution, and capital adequacy specifically measures its capital relative to risk-weighted assets, emphasizing its ability to withstand financial stress.
  • Stress Testing: A Comprehensive Overview
    Stress Testing is a method of risk analysis that uses simulations to estimate the impact of worst-case situations. This article explores its historical context, key events, types, and applications in various fields, along with mathematical models, charts, and more.
  • Texas Ratio
    The Texas Ratio is a financial metric developed to assess the credit risk and potential financial health issues of banks, especially in regional contexts. This entry provides a comprehensive overview of the Texas Ratio, including its definition, calculation, significance, and historical context.
• Regulatory Bank Capital and Basel Rules
  Basel, RWA, CET1, Tier 1, Tier 2, leverage ratio, capital adequacy, and regulatory-capital terms.
  • Bank Capital Components
    Risk-management terms for CET1, Tier 1, Tier 2, tier capital, and retained bank capital components.
    • Common Equity Tier 1 (CET1): Comprehensive Definition and Calculation
      An in-depth examination of Common Equity Tier 1 (CET1), a crucial component of Tier 1 capital primarily consisting of common stock held by financial institutions. Learn about its definition, calculation, historical significance, applications, and related terms.
    • Tier 1 Capital: Definition, Key Components, Ratio Calculation, and Practical Applications
      A comprehensive guide to Tier 1 Capital, detailing its definition, key components, ratio calculation, and practical applications in banking.
    • Tier 2 Capital: Definition, Components, and Inclusions
      A comprehensive guide on Tier 2 Capital, its definition, core components such as revaluation reserves, undisclosed reserves, hybrid instruments, and subordinated term debt, and their inclusions in financial systems.
    • Tier Capital: Different Classes of Bank Capital
      Tier Capital refers to different classes of bank capital, with Tier 1 being the core capital consisting of common equity and disclosed reserves.
    • Undivided Profit: An Essential Component of Bank Balance Sheets
      A comprehensive look into Undivided Profit, a crucial element on a bank's balance sheet representing profits that have neither been paid out as dividends nor transferred to the bank's surplus account.
  • Basel Accords And Supervisory Capital Rules
    Risk-management terms for Basel accords, supervisory capital adequacy, regulatory capital, and risk-based capital requirements.
    • Basel Agreement: International Banking Standards
      The Basel Agreement established international risk-based capital adequacy standards for banks, ensuring a level playing field in global banking and enhancing financial stability.
    • Basel I: The Initial Basel Accord on Credit Risk
      Basel I focuses primarily on credit risk management, establishing the first set of international banking regulations to ensure financial stability and minimize risks in the banking sector.
    • BASEL II: The Second Basel Agreement on Capital Adequacy
      An international standard for banking regulators published in June 2004, aimed at creating guidelines on capital adequacy to ensure that financial institutions hold enough capital to cover risks.
    • Capital Adequacy: Measuring Financial Stability
      Capital Adequacy is a measure of a bank's or financial institution's capital to ensure it can absorb potential losses and safeguard depositors' funds.
    • Regulatory Capital: Key Element in Financial Stability
      An exploration of Regulatory Capital, its historical context, categories, key events, importance, and applicability, including mathematical models, examples, and related terms.
    • Risk-Based Capital Requirement: Meaning and Example
      Risk-Based Capital Requirement is a finance-focused reference term for regulation, risk, capital, or market analysis.
  • Risk-Weighted Assets And Capital Ratios
    Risk-management terms for RWA, risk weights, leverage ratios, tangible common equity, and Tier 1 ratio measures.
    • Risk Weight: The Weight Assigned to an Asset Based on Its Risk Level
      Risk Weight is a term used in the context of financial regulations, representing the capital required to ensure a bank can absorb potential losses from different asset classes.
    • Risk-Weighted Assets (RWA)
      Risk-weighted assets are bank exposures weighted by regulatory risk factors for capital adequacy analysis.
    • Tangible Common Equity (TCE): Comprehensive Definition, Calculation Methods, and Real-World Examples
      An in-depth exploration of Tangible Common Equity (TCE), its definition, methods of calculation, real-world examples, historical context, applicability, comparisons, related terms, and frequently asked questions.
    • Tier 1 Capital Ratio: Definition, Formula, and Example
      Tier 1 Capital Ratio is a finance-focused reference term for regulation, risk, capital, or market analysis.
    • Tier 1 Common Capital Ratio: Definition, Importance, and Examples
      A comprehensive guide to understanding the Tier 1 Common Capital Ratio, its significance in banking, how it is calculated, and real-world examples.
    • Tier 1 Leverage Ratio: Definition, Formula, Calculation, and Example
      Learn about the Tier 1 Leverage Ratio, a key financial metric used to assess a bank's core capital relative to its total assets, including its definition, formula, calculation method, and a comprehensive example.
• Risk-Adjusted Return and Economic Capital
  Economic capital, RAROC, and risk-adjusted return on capital terms used in bank performance analysis.
  • Economic Capital (EC): Definition, Calculation, and Examples
    A comprehensive guide to understanding Economic Capital (EC), its calculation, and relevant examples. Explore how financial services firms determine the necessary capital to stay solvent based on their risk profile.
  • RAROC
    RAROC measures risk-adjusted return on capital for business lines, loans, portfolios, or financial institutions.
  • Risk-Adjusted Return on Capital: The Generic Idea Behind RAROC-Style Performance Measures
    Risk-Adjusted Return on Capital is a finance-focused reference term for regulation, risk, capital, or market analysis.